BNP Paribas UAE

BNP Paribas - U.A.E. Branches

Report and financial statements

for the year ended 31 December 2020

BNP Paribas - U.A.E. Branches

Contents Pages

Independent auditor’s report 1 - 3

Statement of financial position 4

Statement of profit or loss and other comprehensive income 5

Statement of changes in capital and reserves 6

Statement of cash flows 7

Notes to the financial statements 8 - 55

Akbar Ahmad (1141), Cynthia Corby (995), Georges Najem (809), Mohammad Jallad (1164), Mohammad Khamees Al Tah (717), Musa Ramahi (872), Mutasem M. Dajani (726), Obada Alkowatly (1056), Rama Padmanabha Acharya (701) and Samir Madbak (386) are registered practicing auditors with the UAE Ministry of Economy.

Deloitte & Touche (M.E.)

Building 3, Level 6 Emaar Square

Downtown Dubai

P.O. Box 4254

Dubai

United Arab Emirates

Tel: +971 (0) 4 376 8888

Fax:+971 (0) 4 376 8899

www.deloitte.com

August 17th, 2016

INDEPENDENT AUDITOR’S REPORT

The Directors

BNP Paribas - SA (U.A.E Branches)

Dubai


Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of BNP Paribas - U.A.E. Branches, United Arab Emirates

(the “Branches") of BNP Paribas SA ("the Bank or the Head Office"), which comprise the statement of

financial position as at 31 December 2020, the statement of profit or loss and other comprehensive

income, statement of changes in capital and reserves and statement of cash flows for the year then ended,

and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements present fairly in all material respect, the financial position of the

Branches’ as at 31 December 2020, and its financial performance and cash flows for the year then ended

in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our

responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit

of the Financial Statements section of our report. We are independent of the Branches’ in accordance with

the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants

(“IESBA Code”) together with the other ethical requirements that are relevant to our audit of the

Branches’ financial statements in the United Arab Emirates, and we have fulfilled our other ethical

responsibilities requirements in accordance with these requirements and the IESBA Code. We believe that

the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in

accordance with International Financial Reporting Standards and their compliance with the applicable

provisions of UAE Federal Law No. (2) of 2015, and for such internal control as management determines

is necessary to enable the preparation of financial statements that are free from material misstatement,

whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Branches’ ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the

going concern basis of accounting unless management either intends to liquidate the Branches’ or to cease

operations, or has no realistic alternative but to do so.

Those Charged with Governance is responsible for overseeing the Branches’ financial reporting process.

Cont’d…


To the Directors of BNP Paribas - SA (U.A.E Branches), Dubai (continued)

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are

free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an

audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the

basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain

professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud

or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that

is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than the one resulting from error, as fraud may involve

collusion, forgery, intentional omission, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and

based on the audit evidence obtained, whether a material uncertainty exists related to events or

conditions that may cast significant doubt on the Branches’ ability to continue as a going concern. If

we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s

report to the related disclosures in the financial statements or, if such disclosure are inadequate, to

modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditor’s report. However, future events or conditions may cause the Branches’ to cease to continue

as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the

disclosures, and whether the financial statements represents the underlying transactions and events in

a manner that achieves fair presentation.

We communicate with Those Charged with Governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in

internal control that we identify during our audit.


To the Directors of BNP Paribas - SA (U.A.E Branches), Dubai (continued)

Report on Other Legal and Regulatory Requirements

As required by the UAE Federal Law No. (2) of 2015 (as amended), we report for the year ended

31 December 2020:

• we have obtained all the information we considered necessary for the purposes of our audit;

• the financial statements have been prepared and comply, in all material respects, with the applicable

provisions of the UAE Federal Law No. (2) of 2015;

• the Branches have maintained proper books of account;

• no shares were purchased or invested during the financial year ended 31 December 2020;

• note 23 to the financial statements reflects material related party transactions, and the terms under

which they were conducted;

• based on the information that has been made available to us nothing has come to our attention which

causes us to believe that the Branches has contravened during the year ended 31 December 2020 any

of the applicable provisions of the UAE Federal Law No. (2) of 2015 or of its Articles of Association

which would materially affect its activities or its financial position as at 31 December 2020; and

Deloitte & Touche (M.E.)

Musa Ramahi

Registration No. 871

20 April 2021

Dubai


BNP Paribas - U.A.E. Branches 4

Statement of financial position As at 31 December 2020

Notes 2020 2019 AED’000 AED’000

ASSETS Cash and balances with the Central Bank of the UAE 5 842,924 1,409,988 Due from other banks 6 66,659 42,429 Due from Head Office and branches 7 2,826,112 2,484,407 Loans and advances 8 2,265,125 2,455,069 Other assets 9 551,885 575,564 Furniture and equipment 15,057 20,784

Total assets 6,567,762 6,988,241

LIABILITIES AND CAPITAL AND RESERVES LIABILITIES Customers’ deposits 10 3,167,004 4,204,860 Balances due to the Central Bank of the UAE 5 1,692 - Due to other banks 2 10 Due to Head Office and branches 11 1,131,858 318,970 Other liabilities 12 584,617 664,141

Total liabilities 4,885,173 5,187,981

CAPITAL AND RESERVES Designated capital 13 446,431 446,431 Legal reserve 14 162,720 162,720 General reserve 14 95,000 95,000 Retained earnings 982,061 1,098,056 Actuarial loss 12 (3,623) (1,947)

Total capital and reserves 1,682,589 1,800,260

Total liabilities, capital and reserves 6,567,762 6,988,241

................................ Eric Cohu Country Head - UAE

The accompanying notes form an integral part of these financial statements.

BNP Paribas - U.A.E. Branches 5 Statement of profit or loss and other comprehensive income


Note 2020 2019

AED’000 AED’000

Interest income 15 67,429 142,246

Interest expense 16 (18,250) (36,682)

Net interest income

49,179 105,564

Net fee and commission income 17 71,648 76,400

Net foreign exchange income

16 470

Operating income

120,843 182,434

Operating expenses 18 (96,926) (110,873)

Net impairment loss/(reversal) on financial assets 8(d) (167,614) 13,561

Net (loss)/profit before taxation

(143,697) 85,122

Taxation 19 27,702 (18,833)

Net (loss)/profit for the year after taxation

(115,995) 66,289

Items that will not be reclassified subsequently to profit

or loss

Remeasurement of employees’ end of service benefits 12 (1,676) 1,715

Total comprehensive (loss)/income for the year

(117,671) 68,004



Statement of changes in capital and reserves


Note

Allocated

capital

Legal

reserve

General

reserve

Retained

earnings

Actuarial

loss

Total

AED’000 AED’000 AED’000 AED’000 AED’000 AED’000

At 1 January 2019 446,431 156,091 89,000 1,044,396 (3,662) 1,732,256

Net profit for the year - - - 66,289 - 66,289

Other comprehensive income - - - - 1,715 1,715

Total comprehensive income for the year - - - 66,289 1,715 68,004

Transfer to legal reserve 14 - 6,629 - (6,629) - -

Transfer to general reserve 14 - - 6,000 (6,000) - -

At 31 December 2019 446,431 162,720 95,000 1,098,056 (1,947) 1,800,260

Net loss for the year - - - (115,995) - (115,995)

Other comprehensive loss - - - - (1,676) (1,676)

Total comprehensive loss for the year - - - (115,995) (1,676) (117,671)

At 31 December 2020 446,431 162,720 95,000 982,061 (3,623) 1,682,589



Statement of cash flows


Notes 2020 2019

AED’000 AED’000

Cash flows from operating activities

(Loss)/profit before taxation (143,697) 85,122

Adjustments for:

Net impairment loss/(reversal) on financial assets 8(d) 167,614 (13,561)

Depreciation 18 5,589 7,944

Provision for employees’ end of service benefits 20 1,272 2,042

Operating cash flows before payment of employees’ end

of service benefits, income tax paid and changes in assets

and liabilities

30,778 81,547

Payment/transfer of employees’ end of service benefits 12 (1,127) (4,912)

Income tax paid (22,548) (20,409)

Changes in assets and liabilities:

Statutory deposits with the Central Bank of the UAE 87,492 51,913

Due from other banks excluding balances considered as cash

and cash equivalents

12,237

(12,237)

Due from Head Office and other branches excluding

balances considered as cash and cash equivalents

(1,355,621)

(383,479)

Loans and advances before movement in provision and

amounts written of

26,241

(440,985)

Other assets excluding deferred income tax 56,020 110,030

Customers’ deposits (1,037,856) 1,156,172

Due to Head Office and branches 812,887 (231,138)

Balances due to the Central Bank of the UAE 1,692 -

Due to other banks (8) (953)

Other liabilities excluding provision for taxation and

employees’ end of service benefits

(67,347)

(88,622)

Net cash (used in)/generated from operating activities (1,457,160) 216,927

Cash flows from investing activities

Certificate of deposits with the Central Bank of the UAE 950,000 (150,000)

Purchase of furniture and equipment, net 138 (25,560)

Net cash generated from/(used in) investing activities 950,138 (175,560)

Net (decrease)/increase in cash and cash equivalents (507,022) 41,367

Cash and cash equivalents, beginning of the year 2,283,692 2,242,325

Cash and cash equivalents, end of the year 21 1,776,670 2,283,692


Notes to the financial statements


1. Establishment and operations

BNP Paribas SA (“the Bank” / “Head Office”) is a public limited company incorporated in France and the

address of its registered office is 16, Boulevard des Italiens, 75009, Paris. The principal activity of the

Bank in the United Arab Emirates (“UAE”) is commercial banking which is carried out from its branches

in Abu Dhabi and Dubai (“the Branches”).

UAE Federal Law No. 2 of 2015 ("Companies Law") which is applicable to the branches has come into

effect from 1 July 2015. The Federal Law No. 26 of 2020 amending certain provisions of the Companies

Law was issued on 27 September 2020 and has come into effect on 2 January 2021. The branches are

currently assessing and evaluating the relevant amendments as the transitional provisions contained therein

allow 12 months from the effective date to ensure compliance.

These financial statements comprise the combined assets, liabilities and results of the branches of the Bank.

2. Application of new and revised International Financial Reporting Standards (“IFRS”)

The following new and revised IFRS, which became effective for annual periods beginning on or after

1 January 2020, have been adopted in these financial statements. The application of these revised IFRS has

not had any material impact on the amounts reported for the current and prior years but may affect the

accounting for future transactions or arrangements.

▪ Revised 'Conceptual Framework for Financial Reporting’.

▪ Amendments to IFRS 3 Business Combinations to clarify the definition of a business.

▪ Amendments to IFRS 7 Financial Instruments: Disclosures and IFRS 9 Financial Instruments

regarding pre-replacement issues in the context of the IBOR reform.

▪ Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,

Changes in Accounting Estimates and Errors regarding the definition of material.

2.2 New and revised IFRS in issue but not yet effective and not early adopted

The Branches has not yet early applied the following new standards, amendments and interpretations that

have been issued but are not yet effective:

New and revised IFRS

Effective for

annual periods

beginning on or after

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28

Investments in Associates and Joint Ventures relating to the treatment of the

sale or contribution of assets from an investor to its associate or joint venture.

Effective date deferred

indefinitely

Amendments to IAS 1 Presentation of Financial Statements regarding the

classification of liabilities.

1 January 2023

IFRS 17 Insurance Contracts establishes the principles for the recognition,

measurement, presentation and disclosure of insurance contracts and

supersedes IFRS 4 Insurance Contracts.

1 January 2023



for the year ended 31 December 2020 (continued)

2. Application of new and revised IFRSs (continued)

2.2 New and revised IFRS in issue but not yet effective and not early adopted (continued)

New and revised IFRS

Effective for

annual periods

beginning on or after

Amendments IFRS 3 Business Combination updating a reference to the

Conceptual Framework.

1 January 2022

Amendments to IFRS 16 Leases provide lessees with an exemption from

assessing whether a COVID-19-related rent concession is a lease modification.

1 June 2020

Amendments to IAS 16 Property, Plant and Equipment prohibiting a company

from deducting from the cost of property, plant and equipment amounts

received from selling items produced while the company is preparing the asset

for its intended use.

1 January 2022

Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent

Assets regarding the costs to include when assessing whether a contract is

onerous.

1 January 2022

Amendments to IFRS 4 Insurance Contracts, IFRS 7 Financial Instruments:

Disclosures, IFRS 9 Financial Instruments and IFRS 16 Leases regarding

replacement issues in the context of the IBOR reform.

1 January 2021

Annual Improvements to IFRS 2018 – 2020 Cycle amending IFRS 1, IFRS 9,

IFRS 16 and IAS 41.

1 January 2022

Management anticipates that these new standards, interpretations and amendments will be adopted in the

Branches financial statements for the period of initial application and adoption of these new standards,

interpretations and amendments may have no material impact on the financial statements of the Branches

in the period of initial application.

3. Significant accounting policies

Basis of preparation

The financial statements are prepared in accordance with and comply with International Financial

Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The financial

statements are prepared under the historical cost convention, except for derivative financial instruments

which have been measured at fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical

accounting estimates. It also requires management to exercise its judgment in the process of applying the

Branch’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas

where assumptions and estimates are significant to the financial statements are disclosed in Note 4.

The principal accounting policies are set out below:




3. Significant accounting policies (continued)

Foreign currencies

Functional and presentation currency

Items included in the financial statements of the branches are measured using the currency of the primary

economic environment in which the entities operates (the “functional currency”). The financial statements

are prepared in AED, which is the branches’ functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement

of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities

denominated in foreign currencies are recognised in the statement of comprehensive income.

Derivative financial instruments

Derivative financial instruments include foreign exchange contracts, interest rate swaps, options (both

written and purchased) and other derivative financial instruments. Derivatives are initially recognised at

fair value on the date on which a derivative contract is entered into and are subsequently re-measured at

their fair value. Fair values are obtained from quoted market prices in active markets, including recent

market transactions, and valuation techniques, including discounted cash flow models and options pricing

models, as appropriate.

All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative,

with the gain or loss taken to the statement of comprehensive income.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair

value of the consideration given or received) unless the fair value of that instrument is evidenced by

comparison with other observable current market transactions in the same instrument (i.e. without

modification or repackaging) or based on a valuation technique whose variables include only data from

observable markets.

Reverse repurchase agreements

Securities temporarily acquired under reserve repurchase agreement are not recognized in the Branches'

statement of financial position. The corresponding receivables is recognised at amortised cost under due

form head Offices and branches' in the statement of financial position.





Income and expense

Interest income and expense

Interest income and expense for all interest-bearing financial instruments are recognised within ‘interest

income’ and ‘interest expense’ in the statement of comprehensive income using the effective interest

method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial

liability and of allocating the interest income or interest expense over the relevant period. The effective

interest rate is the rate that exactly discounts estimated future cash payments or receipts through the

expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount

of the financial asset or financial liability.

When calculating the effective interest rate, the Branches’ estimates cash flows considering all contractual

terms of the financial instrument (for example, prepayment options) but does not consider future credit

losses. The calculation includes all fees and points paid or received between parties to the contract that are

an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an

impairment loss, interest income is recognised using the rate of interest used to discount the future cash

flows for the purpose of measuring the impairment loss.

Fee and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided.

Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct

costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are

recognised as revenue when the syndication has been completed and the Branches’ retained no part of the

loan package for itself or retained a part at the same effective interest rate for the other participants.

Leases

Rental contracts may contain both lease and non-lease components. The Branches allocates the

consideration in the contract to the lease and non-lease components based on their relative stand-alone

prices. However, for leases of real estate for which the Branches are a lessee, it has elected not to separate

lease and non-lease components and instead accounts for these as a single lease component.

Lease terms are negotiated on an individual basis and contain a wide range of different terms and

conditions. The lease agreements do not impose any covenants other than the security interests in the leased

assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

Until the 2018 financial year, leases of furniture and Equipment were classified as either finance leases or

operating leases. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding

liability at the date at which the leased asset is available for use by the Branches.





Leases (continued)

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities

include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payment that are based on an index or a rate, initially measured using the index or rate

as at the commencement date∙ amounts expected to be payable by the Branch under residual value

guarantees;

• the exercise price of a purchase option if the Branches are reasonably certain to exercise that option

and

• payments of penalties for terminating the lease, if the lease term reflects the Branches exercising that

option.

Lease payments to be made under reasonably certain extension options are also included in the

measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily

determined, which is generally the case for leases in the Branch, the lessee’s incremental borrowing rate is

used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain

an asset of similar value to the right-of-use asset in a similar economic environment with similar terms,

security and conditions.

To determine the incremental borrowing rate, the Branches:

• where possible, uses recent third-party financing received by the individual lessee as a starting point,

adjusted to reflect changes in financing conditions since third party financing was received;

• uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held

by the Branch, which does not have recent third party financing, and

• makes adjustments specific to the lease, term, country, currency and security.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or

loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of

the liability for each period.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs, and

• restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term

on a straight-line basis. If the Branches are reasonably certain to exercise a purchase option, the right-of-

use asset is depreciated over the underlying asset’s useful life.





Leases (continued)

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets

are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a

lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office

furniture.

Extension and termination options are included in a number of Furniture and Equipment leases across the

Branches. These are used to maximise operational flexibility in terms of managing the assets used in the

Branches’ operations. The majority of extension and termination options held are exercisable only by the

Branch and not by the respective lessor.

Financial assets and liabilities

Measurement methods

The amortised cost is the amount at which the financial asset or financial liability is measured at initial

recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective

interest method of any difference between that initial amount and the maturity amount and, for financial

assets, adjusted for any loss allowance.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts

through the expected life of the financial asset or financial liability to the gross carrying amount of a financial

asset (i.e. its amortised cost before any impairment allowance) or to the amortised cost of a financial liability.

The calculation does not consider expected credit losses and includes transaction costs, premiums or

discounts and fees and points paid or received that are integral to the effective interest rate, such as

origination fees. For purchased or originated credit- impaired (“POCI”) financial assets – assets that are

credit-impaired at initial recognition the Branches calculate the credit-adjusted effective interest rate,

which is calculated based on the amortised cost of the financial asset instead of its gross carrying amount

and incorporates the impact of expected credit losses in estimated future cash flows.

When the Branches revise the estimates of future cash flows, the carrying amount of the respective

financial assets or financial liability is adjusted to reflect the new estimate discounted using the original

effective interest rate. Any changes are recognised in statement of comprehensive income.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial

assets, except for:

(a) POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the

amortised cost of the financial asset.

(b) Financial assets that are not “POCI” but have subsequently become credit – impaired (or ‘stage 3’),

for which interest revenue is calculated by applying the effective interest rate to their amortised cost

(i.e. net of the expected credit loss provision).





Financial assets and liabilities (continued)

Initial recognition and measurement

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual

provisions of the instrument. Regular way purchases and sales of financial assets are recognised on trade-

date, the date on which the Branches commit to purchase or sell the asset.

At initial recognition, the Branches measure a financial asset or financial liability at its fair value plus or

minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction

costs that are incremental and directly attributable to the acquisition or issue of the financial asset or financial

liability, such as fees and commissions. Transaction costs of financial assets and financial liabilities carried

at fair value through profit or loss are expensed in the statement of comprehensive income. Immediately after

initial recognition, an expected credit loss allowance (ECL) is recognised for financial assets measured at

amortised cost, which results in an accounting loss being recognised in the statement of comprehensive

income when an asset is newly originated.

Financial assets

Classification and subsequent measurement

From 1 January 2018, the Branches have applied IFRS 9 and classify its financial assets in the following

measurement categories:

• Fair value through profit or loss (FVPL); or

• Amortised cost.

The classification requirements for debt instruments are described below:

Debt instruments

Debt instruments are those instruments that meet the definition of a financial liability from the issuer’s

perspective, such as loans, governments and corporate bonds.

Classification and subsequent measurement of debt instruments depend on:

• the Branches’ business model for managing the asset; and

• the cash flow characteristics of the asset.

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows

represents solely payments of principal and interest (‘SPPI’) that are not designated as FVPL are measured

at amortised cost. The carrying amount of these assets is adjusted by any expected credit loss allowance.

Interest income from these financial assets is included in ‘Interest income’ using the effective interest rate

method.

Fair value through profit or loss (FVPL): The Branches classified their derivative instruments at FVPL.






Financial assets (continued)

Debt instruments (continued)

Business model: the business model reflects how the Branches manage the assets in order to generate cash

flows. That is, whether the Branches’ objective is solely to collect the contractual cash flows from the assets

or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of

these is applicable (e.g. financial assets are held for trading purposes), the financial assets are classified as

part of ‘other’ business model held for trading purposes), then the financial assets are measured at FVPL.

Factors considered by the Branches in determining the business model for a group of assets include past

experience on how the cash flows for these assets were collected, how the asset’s performance is evaluated

and reported to key management personnel, how risks are assessed and managed and how managers are

compensated.

SPPI: Where the business model is to hold assets to collect contractual cash flows or to collect contractual

cash flows and sell, the Branches assess whether the financial instruments; cash flows represent solely

payments of principal and interest (the ‘SPPI’ test). In making the assessment, the Branches consider

whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes

only consideration for the time value of money, credit risk, other basic lending risks and a profit margin

that is consistent with a basic lending arrangement.

Impairment

The Branches assess on a forward- looking basis the expected credit losses (‘ECL’) associated with its debt

instrument assets carried at amortised cost and with the exposure arising from loan commitments and

financial guarantee contracts. The Branches recognise a loss allowance for such losses at each reporting

date.

The measurement of ECL reflects:

• An unbiased and probability-weighted amount that is determined by evaluating a range of possible

outcomes;

• The time value of money; and

• Reasonable and supportable information that is available without undue cost or effort at the reporting

date about past events, current conditions and forecasts of future economic conditions.

Modification of loans

The Branches sometimes renegotiate or otherwise modifies the contractual cash flows of loans. When this

happens, the Branches assess whether or not the new terms are substantially different to the original terms.

The Branches do this by considering, among others, the following factors:

• If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash

flows to amounts the borrower is expected to be able to pay.

• Whether any substantial new terms are introduced, such as a profit share/equity-based return that

substantially affects the risk profile of the loan.






Financial assets (continued)

Modification of loans (continued)

• Significant extension of the loan term when the borrower is not in financial difficulty.

• Significant change in the interest rate.

• Change in the currency the loan is denominated in.

• Insertion of collateral, other security or credit enhancements that significantly affect the credit risk

associated with the loan.

If the terms are substantially different, the Branches derecognise the original financial asset and recognises a

‘new’ asset at fair value and recalculates a new effective interest rate for the asset.

The date of renegotiation is consequently considered to be the date of initial recognition for impairment

calculation purposes, including for the purpose of determining whether a significant increase in credit risk

has occurred.

However, the Branches also assess whether the new financial asset recognised is deemed to be credit-

impaired at initial recognition, especially in circumstances where the renegotiation was driven by the

debtor being unable to make the originally agreed payments. Differences in the carrying amount are also

recognised in the statement of comprehensive income on derecognition.

If the terms are not substantially different, the renegotiation or modification does not result in derecognition,

and the Branches recalculate the gross carrying amount based on the revised cash flows of the financial asset

and recognises a modification gain or loss in the statement of comprehensive income.

Derecognition other than on a modification

Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash flows

from the assets have expired, or when they have been transferred and either (i) the Branches transfer

substantially all the risks and rewards of ownership, or (ii) the Branches neither transfer nor retain

substantially all the risks and rewards of ownership and the Branches have not retained control.

Financial liabilities

Classification and subsequent measurement

In both the current and prior period, financial liabilities are classified and subsequently measured at

amortised cost, except for financial liabilities at fair value through profit or loss: this classification is applied

to derivatives.

Decrecognition

Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the

contract is discharged, cancelled or expires).





Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position

when the Branches’ has a legally enforceable right to set off the recognised amounts and the Branches’ has

an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Provisions

Provisions are recognised when the Branches’ has a present obligation (legal or constructive) as a result

of a past event, it is probable that the Branches’ will be required to settle the obligation, and a reliable

estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present

obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying

amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from

a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be

received and the amount of the receivable can be measured reliably

Furniture and equipment

Furniture and equipment are stated at historical cost less depreciation. Historical cost includes expenditure

that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s

carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future

economic benefits associated with the item will flow to the Branches’ and the cost of the item can be

measured reliably. All other repairs and maintenance are charged to the statement of comprehensive

income during the financial period in which they are incurred.

Depreciation is computed using the straight line method at rates calculated to reduce the cost of assets to

their estimated residual values over their expected useful lives, as follows:

Years

Furniture and fixtures 3 to 10

Computer and office equipment 3 to 4

Motor vehicles 5

Leasehold improvements 5

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with

effect of any changes in estimate accounted for on a prospective basis.

Assets that are subject to depreciation are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is

written down immediately to its recoverable amount if the asset’s carrying amount is greater than its

estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to

sell and value in use.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These

are included in the statement of comprehensive income.





Provision for employees’ end of service benefits

The pension contributions in respect of international / expatriate staff are made in accordance with BNP

Paribas group policy and are made in lieu of the terminal gratuity payable under the UAE Labour Law.

The liability for international / expatriate staff pension is settled through the Head Office account and

accounted as a charge in the statement of comprehensive income.

In accordance with the provisions of the UAE Federal Law No.(7), 1999, for Pension and Social Security,

contributions for UAE national employees are made and deposited with the United Arab Emirates General

Provision and Social Security Authority and are charged to the statement of comprehensive income and

are disclosed under other liabilities.

Amounts due to other staff as end of service benefits for their periods of service up to the statement of

financial position date are computed in accordance with the UAE Labour Law. Provision is made for the

full amount of end of service benefits due to employees for their periods of service upto the statement of

financial position date and are disclosed under other liabilities.

A provision is made for the estimated liability for annual leave and airfares as a result of services rendered

by employees up to the statement of financial position date.

Taxation

Provision for taxation is made in respect of the branches’ operations in the Emirates of Dubai and

Abu Dhabi whereby tax is payable at the rate of 20% of the adjusted net profit generated during the year

in each of the Emirates, in accordance with the relevant legislation of each Emirate.

Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is

probable that future taxable profit will be available against which the unused tax losses can be utilised.

Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, amounts

due from other banks, Head Office and branches and certificate of deposit with the Central Bank of the

UAE with an original maturity of three months or less (excluding the minimum reserve deposit placed with

the Central Bank of the UAE in compliance with the statutory requirements applicable in the UAE).

Impact of COVID-19 assessment

The existence of the novel coronavirus (COVID-19) was confirmed in early 2020 and was subsequently

declared a pandemic by the World Health Organisation. Measures taken to contain and slow the spread of

the virus have significantly impacted global economic activity as it necessitated global travel restrictions

and lockdown measures in most countries of the world between February and May 2020. Due to the

unprecedented adverse effect of the lockdown on the global economy and some success in the efforts to

flatten the infection curve, many countries started to gradually ease the restrictions and open up for

movement of people starting May 2020 onwards in a restricted way.





Impact of COVID-19 assessment (continued)

As at 31 December 2020, the Branches brought some changes to the methodology regarding Forward

Looking factors:

- The Branches implemented a medium-term perspective for macroeconomic scenarios that consist in

determining a smooth path for macroeconomic parameters (GDP level in particular) between the end of

2019 and Q3 2021. The medium term perspective (MTP) consists in extracting from the scenario the level

of activity after the pandemic crisis and to assume a smooth path (for GDP level in particular) between the

end of 2019 and this point.

- A sector differentiation in the treatment of forward looking since the impact of the Covid-19 crisis is

clearly heterogeneous among sectors.

Overall, the sectoral prospective methodology consists in setting macroeconomic scenarios at sectoral level

by disaggregating the "baseline" macroeconomic scenario formulated for GDP at the sector level. These

sector-level scenarios for economic activity are used to determine by sector PD term structures to be used

in ECL calculations.

As at 31 December 2020 and to be consistent with the introduction of a sector differentiation in the

measurement of forward looking information on PDs, the staging approach has also been reviewed.

Compared to the previous situation, where the staging rules depended only on the portfolio segment –

Wholesale, SME, Retail, a sectoral dimension has been added to differentiate staging rules. The approach

is still based on the comparison between rating at inception and actual rating, but it has been enriched by a

tightening of staging criteria for the sectors significantly impacted by the Covid-19 crisis.

As of the date of approval of these financial statements, the Branch does not have any risk of going concern.

In 2021, a favourable trend in growth rates is expected, reflecting: a) a mechanical catch-up; b) government

and central bank measures; c) positive developments in terms of vaccines

4. Critical accounting judgements and key sources of estimation uncertainty

The Branches’ makes estimates and assumptions that affect the reported amounts of assets and liabilities

within the next financial year. Estimates and judgements are continually evaluated and are based on

historical experience and other factors, including expectations of future events that are believed to be

reasonable under the circumstances.

Measurement of the expected credit loss allowance

The measurement of the expected credit loss allowance for financial assets measured at amortised cost is

an area that requires the use of complex models and significant assumptions about future economic

conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses).

Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is further detailed

in note 3, which also sets out key sensitivities of the ECL to changes in these elements.

A number of significant judgements are also required in applying the accounting requirements for

measuring ECL, such as:

• Determining criteria for significant increase in credit risk;

• Choosing appropriate models and assumptions for the measurement of ECL;

• Establishing the number and relative weightings of forward-looking scenarios for each type of

product/market and the associated ECL; and

• Establishing groups of similar financial assets for the purposes of measuring ECL.




4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Income taxes

The Branches’ is subject to income taxes in the Emirate of Dubai. Significant estimates are required in

determining the provision for income taxes. There are transactions and calculations for which the ultimate

tax determination is uncertain. The Branches’ recognises liabilities for anticipated tax audit issues based

on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is

different from the amounts that were initially recorded, such differences will impact income tax and

deferred tax.

The deferred tax assets recognised at 31 December 2020 have been based on future profitability

assumptions. In the event of changes to these profitability assumptions, the tax assets recognised may be

adjusted.

5. Cash and balances with the Central Bank of the UAE 2020 2019

AED’000 AED’000

Balances due from the Central Bank of the UAE: - Statutory deposits 212,902 300,394 - Certificate of deposits - 950,000 - Current account - 158,933 - Overnight placements 630,000 -

842,902 1,409,327 Cash in hand 22 661

Cash and balances with the Central Bank of the UAE 842,924 1,409,988

Balances due to the Central Bank of the UAE 1,692 -

The statutory deposits with the Central Bank of the UAE amounting to AED 213 million (2019: AED 300

million) are not available to finance the day to day operations of the branches.

As at 31 December 2020, overnight placements carry an interest rate of 0.10% (2019: Nil) per annum.

6. Due from other banks

2020 2019

AED’000 AED’000 Placements 32,738 40,014 Current accounts 33,921 2,415

66,659 42,429




6. Due from other banks (continued)

As at 31 December 2020, placements due from other banks carry an interest rate of 0.64% (2019: 2.40%) per annum. 2020 2019 AED’000 AED’000

By geographical area: Within UAE - 12,694 Other GCC countries 65,952 28,007 OECD countries 347 690 Others 360 1,038

66,659 42,429

Due from other banks include balances with an original maturity of three months or less amounting to

AED 67 million (2019: AED 30 million).

7. Due from Head Office and branches

2020 2019 AED’000 AED’000 Placements 2,793,990 2,407,227 Current accounts 32,122 77,180

2,826,112 2,484,407

By geographical area: Other GCC countries 792,426 61,686 OECD countries 2,033,439 2,421,759 Others 247 962

2,826,112 2,484,407

Due from Head Office and branches include balances with an original maturity of three months or less

amounting to AED 1,080 million (2019: AED 2,094 million).

As at 31 December 2020, placements due from Head Office and branches carry an interest rate of -0.41%

(2019: 0.85%) per annum.

8. Loans and advances

2020 2019 AED’000 AED’000 Loans and advances 2,684,038 2,690,275 Less: Provision for impairment (296,073) (132,302) Less: Interest in suspense (122,840) (102,904)

Net loans and advances 2,265,125 2,455,069




8. Loans and advances (continued)

At 31 December 2020, the aggregate amount of secured loans amounted to AED Nil (2019: AED Nil).

Analysis of loans and advances

2020 2019 AED’000 AED’000 By type: Overdrafts 252,913 392,831

Loans 2,102,144 1,983,471

Trust receipts 304,857 290,727

Bills discounted and purchased 24,124 23,246

2,684,038 2,690,275

Analysis of loans and advances

2020 2019 AED’000 AED’000 By geographical area:

Within UAE 1,643,488 1,996,535

Other GCC countries 765,104 403,975

OECD countries 8 14,328

Others 275,438 275,437

2,684,038 2,690,275

By economic sector:

Trade and commerce 359,947 413,119

Construction 127,935 127,140

Manufacturing 502,489 549,078

Services 231,027 258,225

Transport, storage and communication - 8

Mining and quarrying 397,934 48,538

Financial institutions 367,250 438,674

Government 694,091 852,362

Others 3,365 3,131

2,684,038 2,690,275




8. Loans and advances (continued)

8(c) Provision for impairment Movement in provision for impairment 2020 2019

AED’000 AED’000

At 1 January 132,302 140,743

Net impairment/(reversal) during the year 163,731 (8,417)

Write-off - (28)

Foreign exchange revaluation 40 4

At 31 December 296,073 132,302

8(d) Net impairment loss/(reversal) on financial assets 2020 2019 AED’000 AED’000 Net impairment/(reversal) on loans and advances 163,731 (8,417) Net (reversal)/impairment on due from other banks (28) 28 Net impairment/(reversal) on contingencies and commitments 3,911 (4,878) Others - (294)

167,614 (13,561)

At 31 December 2020, the aggregate amount of non-performing loans and advances including interest

amounted to AED 470 million (2019: AED 234 million).

9. Other assets

2020 2019 AED’000 AED’000 Derivative financial instruments (Note 25) 431,652 479,693 Clearing account - 12,573 Deferred tax asset (see below) 59,855 27,513 Prepayments 653 1,391 Interest receivable 2,250 7,084 Other receivables 57,475 47,310

551,885 575,564




9. Other assets (continued)

Deferred income tax assets

Deferred income taxes are calculated on all temporary differences under the liability method using an

effective tax rate of 20%.

The movement on the deferred income tax account is as follows:

2020 2019 AED’000 AED’000 At 1 January 27,513 24,895 Charge for the year 32,342 2,618

At 31 December 59,855 27,513

Deferred income tax assets are recognised only to the extent that realisation of the related tax benefit is

probable. The temporary timing difference primarily arises on account of impairment of loans and advances

disallowed for tax purposes.

2020 2019 AED’000 AED’000 Deferred tax assets: Deferred tax asset to be recovered after more than 12 months 59,855 27,513

10. Customers’ deposits

2020 2019 AED’000 AED’000 Term deposits 735,792 2,050,884 Demand accounts 2,190,984 1,840,427 Call accounts 187,950 265,541 Margin deposits 52,278 48,008

3,167,004 4,204,860

Ten largest customers accounted for 24% (2019: 55%) of the customers’ deposits outstanding at the year

end.




10. Customers’ deposits (continued)

2020 2019 AED’000 AED’000 By geographical area: Within UAE 2,833,462 3,869,801 Other GCC countries 13,348 14,869 OECD countries 211,943 194,515 Others 108,251 125,675

3,167,004 4,204,860

11. Due to Head Office and branches

2020 2019 AED’000 AED’000 Borrowings 1,006,049 218,381 Current accounts 125,809 100,589

1,131,858 318,970

2020 2019 AED’000 AED’000 By geographical area: Other GCC countries 1,044,825 220,946 OECD 74,836 93,443 UAE 10,451 3,401 Others 1,746 1,180

1,131,858 318,970

At 31 December 2020, Borrowings due to Head Office and branches carry an interest rate of 0.16% (2019:

0.97%) per annum.




12. Other liabilities

2020 2019 AED’000 AED’000 Derivative financial instruments (Note 25) 431,657 479,696 Provision for taxation (Note 19) 665 18,571 Fees and commissions received in advance 8,680 8,477 Accrued expenses 32,813 30,909 Provision for bonus 3,086 3,658 Provision for employees’ end of service benefits (see below) 14,660 12,839 Interest payable 928 7,910 Provision for credit losses arising on letters of credit and

guarantees issued (Note 24) 26,458 22,480 Clearing account - 9,525 Other liabilities (see below) 65,670 70,076

584,617 664,141

Movement in provision for employees’ end of service benefits At 1 January 12,839 17,424 Provision made during the year (Note 20) 1,272 2,042 Payments made during the year - (2,579) Transfer to other branches (1,127) (2,333) Actuarial loss/(gain) 1,676 (1,715)

At 31 December 14,660 12,839

In accordance with the provisions of IAS 19, management has carried out an exercise to assess the present

value of its obligations as at 31 December 2020 and 2019, using the projected unit credit method, in respect

of employees’ end of service benefits payable under the UAE Labour Law. The expected liability at the

date of leaving the service has been discounted to net present value using a discount rate of 1.30% (2019:

3.85%). Under this method an assessment has been made of an employee’s expected service life with the

Branches’ and the expected basic salary at the date of leaving the service. Management has assumed

average increment/promotion costs of 1.80% (2019: 2.10%).

This includes accrual for head office charges amounting to AED 4.02 million (2019: AED 7.77 million).

13. Designated capital

In accordance with the UAE Union Law No. (2) of 2015, as amended, designated capital represents an

interest free deposit provided by the Head Office.

As at 31 December 2020, designated capital was AED 446.4 million.

During the year ended 31 December 2020, no additional capital (2019: Nil) was received from Head Office

as an addition to designated capital.




14. Reserves

(a) Legal reserve

In accordance with Article 82 of the UAE Union Law No. (2) of 2015, as amended, 10% of the profit for

the year is required to be transferred to a legal reserve which is non-distributable. Allocations to this reserve

are required to be made until such time as the balance in the reserve equals 50% of the allocated capital.

Accordingly, an amount of AED Nil (2019: AED 6.6 million) has been transferred to the legal reserve for

the year ended 31 December 2020. This reserve is not available for distribution.

(b) General reserve

The Branch has created a non-distributable special reserve titled as ‘General reserve’ in lieu of the general

provision required to be created in accordance with the ‘‘Circular No 28/2010’’ issued by the UAE Central

Bank.

15. Interest income

2020 2019 AED’000 AED’000 Loans and advances 48,294 80,303 Head Office and branches (Note 23) 15,068 44,991 Other banks: - Within the UAE 4,017 16,831 - Outside the UAE 50 121

67,429 142,246

16. Interest expense

2020 2019 AED’000 AED’000 Customers’ deposit 13,935 26,291 Head Office and branches (Note 23) 4,298 10,333 Other banks: -Within the UAE 2 - -Outside the UAE 15 58

18,250 36,682




17. Net fee and commission income

2020 2019 AED’000 AED’000 Commission income: - On documentary credits and guarantees 35,934 35,258 - On transfers 3,513 4,012 - On others* 39,538 42,394

78,985 81,664 Less: commission expense** (7,337) (5,264)

71,648 76,400

*This includes account maintenance charges and fee income allocated by the Head Office. It also includes

fee income of AED 6.12 million (2019: AED 13.84 million) allocated by Head Office.

**includes subordinated cost from related parties of AED 2.89 million (2019: AED 1.74 million).

18. Operating expenses

2020 2019 AED’000 AED’000 Staff costs (Note 20) 34,514 34,522 Outsourced support costs (Note 23) 20,451 19,074 Information technology expenses 11,110 2,780 Depreciation 5,589 7,944 Head Office charges (Note 23) 1,679 7,158 Others 23,583 39,395

96,926 110,873

19. Income tax

2020 2019 AED’000 AED’000 Current taxes on income during the reporting period 665 18,571 Under provision in the prior year 3,975 2,880

Total current tax 4,640 21,451 Increase in deferred tax asset (Note 9) (32,342) (2,618)

Income tax for the year (27,702) 18,833

The income tax rate applicable to the Branches’ 2020 income is 20% (2019: 20%).




19. Income tax (continued)

Further information about deferred income tax is presented in Note 9. The tax on the Branches’ profit

before tax differs from the theoretical amount that would arise using the basic tax rate of the Branches’ as

follows:

2020 2019 AED’000 AED’000 Profit before taxation (143,697) 85,122 Tax calculated at the base tax rate of the branch (28,739) 17,024

Effect of: Expenses not deductible for tax 2,427 1,547 Increase in deferred tax asset (5,365) (2,618) Adjustment for current tax of prior years 3,975 2,880

Income tax for the year (27,702) 18,833

20. Staff costs 2020 2019 AED’000 AED’000 Wages and salaries 21,893 23,246 Employees’ end of service benefits (Note 12) 1,272 2,042 Other benefits 11,349 9,234

34,514 34,522

21. Cash and cash equivalents 2020 2019 AED’000 AED’000 Cash in hand (Note 5) 22 661 Current account with the Central Bank of the UAE (Note 5) - 158,933 Placements with the Central Bank of the UAE (Note 5) 630,000 - Due from other banks with an original maturity of three months

or less (Note 6) 66,659 30,192 Due from Head Office and branches with an original maturity of

three months or less (Note 7) 1,079,989 2,093,906

1,776,670 2,283,692




22. Financial assets and liabilities maturity profile The maturities of financial assets and liabilities and the ability to replace, at an acceptable cost, interest-

bearing liabilities as they mature, are important factors in assessing the liquidity of the Branches’ and its

exposure to changes in interest rates and exchange rates.

The table below analyses financial assets and liabilities of the Branches’ into relevant maturity groupings

based on the remaining period from the statement of financial position date to the contractual maturity date.


Up to 3

months

3 to 12

months

1 to 5

years > 5 years Total

AED’000 AED’000 AED’000 AED’000 AED’000

31 December 2020

Assets Cash and balances with the Central Bank of the UAE 842,924 - - - 842,924

Due from other banks 66,659 - - - 66,659 Due from Head Office and branches 2,826,112 - - - 2,826,112

Loans and advances 644,600 1,249,904 370,621 - 2,265,125

Other assets 491,377 - - - 491,377

Total assets 4,871,672 1,249,904 370,621 - 6,492,197

Liabilities

Customers’ deposits 3,069,063 86,764 11,177 - 3,167,004 Due to the Central Bank of the UAE 1,692 - - - 1,692

Due to other banks 2 - - - 2 Due to Head Office and branches 1,131,858 - - - 1,131,858

Other liabilities 548,814 - - - 548,814

Total liabilities 4,751,429 86,764 11,177 - 4,849,370

Net liquidity gap 120,243 1,163,140 359,444 - 1,642,827




22. Financial assets and liabilities maturity profile (continued)


Up to 3

months

3 to 12

months

1 to 5

years > 5 years Total


31 December 2019

Assets Cash and balances with the Central Bank of the UAE 1,409,988 - - - 1,409,988

Due from other banks 42,429 - - - 42,429 Due from Head Office and branches 2,484,407 - - - 2,484,407

Loans and advances 1,111,376 807,712 535,981 - 2,455,069

Other assets 546,660 - - - 546,660

Total assets 5,594,860 807,712 535,981 - 6,938,553

Liabilities

Customers’ deposits 4,041,786 159,972 3,102 - 4,204,860

Due to other banks 10 - - - 10 Due to Head Office and branches 318,970 - - - 318,970


Total liabilities 4,975,379 159,972 3,102 - 5,138,453

Net liquidity gap 619,481 647,740 532,879 - 1,800,100

23. Related party transactions and balances

A number of banking transactions are entered into with Head Office and branches in the normal course of

business. In addition to the balances reflected in Notes 7 and 11 to the financial statements, the following

transactions were carried out on commercial terms and conditions and/or approved by the management of

the branch.

2020 2019 AED’000 AED’000 Head office and branches Interest income (Note 15) 15,068 44,991

Interest expense (Note 16) 4,298 10,333

Head Office charges (Note 18) 1,679 7,158

Outsourced support costs (Note 18) 20,451 19,074

Fee income allocated by Head Office (Note 17) 6,124 13,837

Forex booking 15,557 3,575

Subordinated cost (Note 17) 2,888 1,740

Employee’s end of service benefits transferred to other branches

(Note 12) 1,127 2,333




23. Related party transactions and balances (continued)

2020 2019 AED’000 AED’000 Key management personnel Short term benefits 889 945

Employees’ end of service benefits - -

Total compensation to key management personnel 2,295 2,340

Number of key management personnel 2 2

2020 2019 AED’000 AED’000 Off Balance Sheet items Letters of guarantees and counter guarantees 4,310,360 4,047,479

Letters of credit 532,561 571,636

Acceptances 743 743

Derivative financial instruments 12,498,868 10,489,438

At 31 December 2020, letters of guarantees and counter guarantees include guarantees amounting to AED

4,310 million (2019: AED 4,047 million) and letters of credit of AED 533 million (2019: AED 572 million)

which are counter guaranteed by Head Office and branches.

At 31 December 2020, derivative financial instruments amounting to AED 12,499 million (2019: AED 10,489

million) have been entered with Head Office and branches.

24. Contingent liabilities and commitments

The Branches’ is a party to the following financial instruments which are subject to normal credit standards,

financial controls and risk management and monitoring procedures:

2020 2019 AED’000 AED’000 Letters of credit 734,526 702,426 Letters of guarantees and counter guarantees 6,914,549 6,861,458 Acceptances 19,333 98,177 Undrawn commitments 373,371 763,537

8,041,779 8,425,598




24. Contingent liabilities and commitments (continued)

At 31 December 2020, provisions in respect of contingent liabilities amounted to AED 26.5 million (2019: AED 22.5 million) (Note 12).

Guarantees and standby letters of credit, which represent irrevocable assurances that the Branches’ will make

payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as

loans. Documentary and commercial letters of credit, which are written undertakings by the Branches’ on

behalf of a customer authorising a third party to draw drafts on the Branches’ up to a stipulated amount under

specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and

therefore have significantly less risk. Cash requirements under guarantees and standby letters of credit are

considerably less than the amount of the commitment because the Branches’ does not generally expect the

third party to draw funds under the agreement.

2020 2019 AED’000 AED’000 By geographical area: Within UAE 2,780,308 3,026,710 Other GCC countries 201,612 601,758 OECD countries 4,429,826 4,117,331 Others 630,033 679,799

8,041,779 8,425,598

25. Derivative financial instruments The Branches’ enters into derivative financial instruments with the Head Office in the normal course of

business. Derivative financial contracts with the customers of the Branches’ are executed with the Head Office

on a back to back basis. The Branches’ is exposed to credit risk on derivative financial instruments with the

customers only to the extent of their carrying amount, which is their fair value. Following are the derivative financial instruments undertaken by the Branches’ and are outstanding at the year end: Contract

amount

Fair value

assets

Fair value

liabilities AED’000 AED’000 AED’000

31 December 2020 Forward foreign exchange contracts and

currency swaps 9,241,462 417,025 417,030

Interest rate swaps 7,345,000 14,627 14,627

16,586,462 431,652 431,657

31 December 2019 Forward foreign exchange contracts and

currency swaps 6,463,532 451,005 451,008

Interest rate swaps 6,331,856 28,688 28,688

12,795,388 479,693 479,696




26. Financial instruments

(a) Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the

basis of measurement and the basis on which income and expenses are recognised, in respect of each class of

financial asset, financial liability and equity instrument are disclosed in Note 3 to the financial statements.

(b) Categories of financial instruments

2020 2019

AED’000 AED’000

Financial assets:

At amortised cost 6,060,545 6,458,860 At fair through profit or loss 431,652 479,693

6,492,197 6,938,553

Financial liabilities:

At amortised cost 4,417,713 4,658,757 At fair through profit or loss 431,657 479,696

4,849,370 5,138,453

(c) Fair value of financial instruments

The fair values of financial assets and liabilities at year end approximate their carrying amounts in the

statement of financial position.

27. Financial risk management

Financial risk factors

The Branches’ activities expose it to a variety of financial risks and those activities involve the analysis,

evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core

to the financial services business, and the operational risks are an inevitable consequence of being in

business. The Branches’ aim is therefore to achieve an appropriate balance between risk and return and

minimise potential adverse effects on the Branches’ financial performance.

The Branches’ risk management policies are designed to identify and analyse these risks, to set appropriate

risk limits and controls, and to monitor the risks and adherence to limits by means of realisable and up-to-

date information systems. Senior management regularly reviews the Branches’ risk management policies

and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by the senior management under policies that are approved by the Bank.

The regional management is responsible for the independent review of risk management and the control

environment. The most important types of risk are credit risk, market risk and liquidity risk.




27. Financial risk management (continued)

Risk controlling

The regional management is responsible for monitoring compliance with risk principles, policies and

limits, within the Branches’ as well as for managing the Branches’ assets and liabilities and overall financial

structure. In addition to that, the Bank is primarily responsible for the funding and liquidity risks of the

Branches’.

Internal audit / Inspection General

Risk management processes in the Branches’ are audited by the internal audit that examines both the

adequacy of the procedures and the Branches’ compliance with the procedures approved by the Bank. The

internal auditor discusses the results of all assessments with management, and reports its findings and

recommendations to the management and Bank.

Credit risk

Credit risk is the risk of suffering financial loss, should any of the Branches’ customers, client or market

counterparties fail to fulfil their contractual obligations to the Branches.

Credit risk arises mainly from balances and placements with other banks, due from other offices of the

Bank, loans and advances to other banks and customers, other assets and off-balance sheet credit related

commitments, such as loan commitments and guarantees.

Loans and advances (including loan commitments and guarantees)

The estimation of credit exposure for risk management purposes is complex and requires the use of models,

as the exposure varies with changes in market conditions, expected cash flows and the passage of time.

The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of

defaults occurring, of the associated loss ratios and of default correlations between counterparties. The

Branches measure credit risk using Probability of Default (PD), Exposure at Default (EAD) and Loss

Given Default (LGD). This is similar to the approach used for the purposes of measuring Expected Credit

Loss (ECL) under IFRS 9.

Credit risk grading

The Branches use internal credit risk grading that reflect its assessment of the probability of default of

individual counterparties. The Branches use internal rating models tailored to the various categories of

counterparty. In addition, the models enable expert judgement from the Head Office to be fed into the final

internal credit rating for each exposure. This allows for considerations which may not be captured as part

of the other data inputs into the model.

The credit grades are calibrated such that the risk of default increases exponentially at each higher risk

grade.





Credit risk (continued)

Credit risk grading (continued)

The rating methods are subject to an annual validation and recalibration so that they reflect the latest

projections in light of all actually observed defaults. The Branches internal rating scale are set out below:

Bank’s Rating Description of the class External rating: Standard & Poor’s equivalent

1-5 Investment grade AAA, AA+, AA- A+, A-, BBB+, BBB, BBB-

6-10 Standard monitoring BB+, BB, BB-, B+, B, B-, CCC to C

11-12 Sub-standard D

Expected credit loss measurement

IFRS 9 outline a ‘three-stage’ model for impairment based on changes in credit quality since initial

recognition as summarised below:

• A financial instrument that is not credit-impaired on initial recognition is classified in ‘stage1’ and has

its credit risk continuously monitored by the Branches.

• If significant increase in credit risk (‘SICR’) since initial recognition is identified, the financial

instrument is moved to ‘stage 2’ but is not yet deemed to be credit-impaired.

• If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’.

• Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime

expected credit losses that result from default events possible within the next 12 months. Instruments

in Stages 2 or 3 have their ECL measured based on expected credit losses on a lifetime basis.

• A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-

looking information.

Purchased or originated credit-impaired financial assets are those financial assets that are credit-impaired on

initial recognition. Their ECL is always measured on a lifetime basis (Stage 3).

Significant increase in credit risk (SICR)

The Branches consider a financial instrument to have experienced a significant increase in credit risk based

on quantitative, qualitative or backstop criteria.

Definition of default and credit-impaired assets

The Branches define a financial instrument as in default, which is fully aligned with the definition of

credit-impaired, when it meets one or more of the following criteria:






Quantitative criteria

The existence of any uncured, missed or delayed payment (principal, interest, fees in the case of loans)

outstanding for more than 90 days (except for situations where the payment default is demonstrably not

related to the counterparty’s insolvency).

The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant financial

difficulty. These are instances where:

• Probable or undoubted risk of payment default, likely to generate a partial or total non-recovery of the

Bank’s exposure, without taking into account any of the potential recoveries resulting from the

enforcement of collaterals or guarantees received.

• Any judicial, administrative or other proceedings (such as bankruptcy and insolvency).

• Any protection from creditors which is sought or commenced against the counterparty (whoever

requested it) and which might avoid, suspend, differ or reduce the counterparty’s payment obligation.

The criteria above have been applied to all financial instruments held by the Branches and are consistent

with the definition of default used for internal credit risk management purposes.

The default definition has been applied consistently to model the Probability of Default (PD), Exposure at

Default (EAD) and Loss given Default (LGD) throughout the Branches’ expected loss calculations.

A counterparty is deemed to emerge from the default status when none of the above default events remains

and when payments have resumed on a regular basis according to the initial or new contractual terms.

Measuring ECL - Explanation of inputs, assumptions and estimation techniques

The Expected Credit Loss (ECL) is measured on either a 12-month (12M) or Lifetime basis depending on

whether a significant increase in credit risk has occurred since initial recognition or whether an asset is

considered to be credit-impaired. Expected credit losses are the discounted product of the Probability of

Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined as follows:

• The PD represents the likelihood of a borrower defaulting on its financial obligation (as per Definition

of default and credit-impaired above), either over the next 12 months (12M PD), or over the remaining

lifetime (Lifetime PD) of the obligation.

• EAD is based on the amounts the Branches expect to be owed at the time of default, over the next 12

months (12M EAD) or over the remaining lifetime (Lifetime EAD).

• LGD represents the Branches’ expectation of the extent of loss on a defaulted exposure. LGD is

expressed as a percentage loss per unit of exposure at the time of default (EAD). LGD is calculated on

a 12-month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made if

the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be

made if the default occurs over the remaining expected lifetime of the loan.

The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual

exposure or collective segment. These three components are multiplied together and adjusted for the

likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). This effectively

calculates an ECL for each future month, which is then discounted back to the reporting date and summed.

The discount rate used in the ECL calculation is the original effective interest rate or an approximation

thereof.






Measuring ECL - Explanation of inputs, assumptions and estimation techniques (continued)

The Lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity profile

looks at how defaults develop on a portfolio from the point of initial recognition throughout the lifetime of

the loans. The maturity profile is based on historical observed data and is assumed to be the same across

all assets within a portfolio and credit grade band. This is supported by historical analysis.

The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by

product type. The 12-month and lifetime LGDs are determined based on the factors which impact the

recoveries made post default. Forward-looking economic information is also included in determining the

12-month and lifetime PD, EAD and LGD. These assumptions vary by product type.

Forward-looking information incorporated in the ECL models

The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The

Branches have performed historical analysis and identified the key economic variables impacting credit

risk and expected credit losses for each portfolio.

The impact of these economic variables on the PD, EAD and LGD has been determined by performing

statistical regression analysis to understand the impact changes in these variables have had historically on

default rates and on the components of LGD and EAD.

Economic variable assumptions

The most significant assumptions affecting the ECL allowance are set out below:

• A baseline scenario which describes the most likely path of the economy over the projection horizon.

This scenario is updated on a quarterly basis. It is designed by Group Economic Research in

collaboration with various experts within the Head Office. Projections are provided for key markets,

through main macro-economic variables (GDP and its components, unemployment rate, consumer

prices, interest rates, foreign exchange rates, oil prices and real estate prices) which are drivers for risk

parameter models used downstream in the credit stress testing process;

• An adverse scenario which describes the impact of the materialisation of some of the risks weighing

on the baseline scenario, resulting in a much less favourable economic path. The starting point is a

shock on GDP. This shock on GDP is applied with variable magnitudes, but simultaneously among

economies when the crisis considered is a global contemporaneous crisis. Other variables

(unemployment, inflation and interest rate) are deducted on the basis of econometric relationships and

expert judgment; and

• A favourable scenario which reflects the impact of the materialisation of some of the upside risks for

the economy, resulting in a much more favourable economic path. To achieve an unbiased estimation

of provisions, the favourable scenario is designed in such a way that the probability of the shock on

GDP growth (on average over the cycle) is equal to the probability of the corresponding shock in the

adverse scenario. Other variables (unemployment, inflation and interest rate) are deducted in the same

way as in the adverse scenario.





Economic variable assumptions (continued)

Maximum exposure to credit risk - Financial instruments subject to impairment

The following table contains an analysis of the credit risk exposure of financial instruments for which an

ECL allowance is recognised. The gross carrying amount of financial assets below also represents the

Branches’ maximum exposure to credit risk on these assets.

2020 2019

Stage 1 Stage 2 Stage 3 Total Total


Due from other banks

Investment grade 66,659 - - 66,659 42,457

66,659 - - 66,659 42,457

Impairment loss allowance - - - - (28)

Carrying amount 66,659 - - 66,659 42,429

Loans and advances

Investment grade 1,837,476 1 - 1,837,477 1,979,038

Standard monitoring 326,933 49,634 - 376,567 477,629

Default - - 469,994 469,994 233,608

2,164,409 49,635 469,994 2,684,038 2,690,275

Less interest in suspense - - (122,840) (122,840) (102,904)

Impairment loss allowance (2,747) (2,189) (291,137) (296,073) (132,302)

Carrying amount 2,161,662 47,446 56,017 2,265,125 2,455,069

Off-balance sheet commitments

Investment grade 6,934,915 - - 6,934,915 6,825,726

Standard monitoring 654,369 406,510 - 1,060,879 1,552,532

Default - - 45,985 45,985 47,340

Carrying amount 7,589,284 406,510 45,985 8,041,779 8,425,598

Impairment loss allowance (3,409) (2,597) (20,452) (26,458) (22,480)





Collateral and other credit enhancements

Collateral

The Branches employ a range of policies and practices to mitigate credit risk. The most traditional of these

is the taking of security for funds advances, which is common practice. The Branches implement guidelines

on the acceptability of specific classes of collateral or credit risk mitigation. The fair value of the collaterals

held as at 31 December 2020 amounts to AED 227.3 million (2019: AED 245.9 million).

Loss allowance

2020

Stage 1 Stage 2 Stage 3

12-month

ECL

Lifetime

ECL

Lifetime

ECL

Total

AED’000 AED’000 AED’000 AED’000

Loans and advances and due from

banks

Loss allowance as at 1 January 1,475 782 130,073 132,330

Transfer from Stage 1 to Stage 2 (187) 187 - -

Transfer from Stage 2 to Stage 1 66 (66) - -

Transfer from Stage 1 to Stage 3 (151) - 151 -

New financial assets and repayments

during the year - net 1,522 1,268 160,913 163,703

Foreign exchange revaluation 22 18 - 40

Loss allowance as at 31 December 2,747 2,189 291,137 296,073

Off balance sheet commitments





during the year - net 1,694 2,217 - 3,911

Foreign exchange revaluation 452 (385) - 67

Loss allowance as at 31 December 3,409 2,597 20,452 26,458





Loss allowance (continued)

2019

Stage 1 Stage 2 Stage 3

12-month

ECL

Lifetime

ECL

Lifetime

ECL

Total

AED’000 AED’000 AED’000 AED’000

Loans and advances and due from

banks




Transfer from Stage 1 to Stage 3 (67) - 67 -

Transfer from Stage 2 to Stage 3 - (8) 8 -


during the year - net 426 724 (9,539) (8,389)

Write-off - - (28) (28)

Foreign exchange revaluation - 5 (1) 4

Loss allowance as at 31 December 1,475 782 130,073 132,330

Off balance sheet commitments Loss allowance as at 1 January 974 1,498 24,891 27,363



Transfer from Stage 2 to Stage 3 - (536) 536 -


during the year - net 55 42 (4,975) (4,878)

Foreign exchange revaluation (1) (4) - (5)

Loss allowance as at 31 December 1,206 822 20,452 22,480

Gross carrying amount

2020

Stage 1 Stage 2 Stage 3 Total

AED’000 AED’000 AED’000 AED’000

Due from banks Gross carrying amount as at 1 January 42,457 - - 42,457


during the year - net 24,202 - - 24,202

Gross carrying amount as at

31 December 66,659 - - 66,659






2019


AED’000 AED’000 AED’000 AED’000

Due from banks Gross carrying amount as at 1 January 29,690 2,346 - 32,036

Transfers from stage 2 to 1 158 (158) - -


during the year - net 12,609 (2,188) - 10,421


31 December 42,457 - - 42,457

2020


AED’000 AED’000 AED’000 AED’000

Loans and advances to customers Gross carrying amount as at 1 January 2,430,266 26,401 130,704 2,587,371

Transfers from Stage 1 to Stage 2 (37,618) 37,618 - -

Transfers from Stage 2 to Stage 1 15,025 (15,025) - -

Transfers from Stage 1 to Stage 3 (236,864) - 236,864 -


during the year - net (6,401) 642 (20,414) (26,173)


31 December 2,164,408 49,636 347,154 2,561,198

Off balance sheet commitments

Gross carrying amount as at 1 January 8,270,790 257,922 47,340 8,576,052



Transfers from Stage 1 to Stage 3 (168) - 168 -


during the year – net (384,116) (148,634) (1,523) (534,273)


31 December 7,589,285 406,509 45,985 8,041,779






2019


AED’000 AED’000 AED’000 AED’000

Loans and advances to customers Gross carrying amount as at 1 January 1,870,304 131,396 139,566 2,141,266



Transfers from Stage 1 to Stage 3 (8,517) - 8,517 -

Transfers from Stage 2 to Stage 3 - (78) 78 -


during the year - net 440,830 22,732 (17,457) 446,105


31 December 2,430,266 26,401 130,703 2,587,371

Off balance sheet commitments Gross carrying amount as at 1 January 5,731,696 329,705 35,330 6,096,731



Transfers from Stage 2 to Stage 3 - (26,306) 26,306 -


during the year – net 2,469,911 (126,748) (14,296) 2,328,867


31 December 8,120,336 257,922 47,340 8,425,598

The other financial assets of the Branches were in stage 1 throughout the year and therefore have

insignificant ECLs. Accordingly, there have been no significant movements between stages in respect of

these financial instruments.

Write-off policy

The Branches write off financial assets, in whole or in part, when they have exhausted all practical recovery

efforts and have concluded there is no reasonable expectation of recovery. Indicators that there is no

reasonable expectation of recovery include (i) ceasing enforcement activity and (ii) Where the Branches’

recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable

expectation of recovering in full.

a) Credit risk and concentrations of risk

The Branches’ takes on exposure to credit risk, which is the risk that a counterparty will cause a financial

loss for the Branches’ by failing to discharge an obligation. Financial assets which potentially subject the

Branches’ to concentrations of credit risk consist principally of balances and placement with other banks,

due from other offices of the Bank, loans and advances to other banks and customers and other assets.

Credit risk is the most important risk for the Branches’ business; management therefore carefully manages

its exposure to credit risk. There is also credit risk in off-balance sheet credit related commitments, such

as loan commitments and guarantees.





a) Credit risk and concentrations of risk (continued)

Industry segmentation

The Branches’ industry concentration of financial assets and off-balance sheet items is set out

below:

In AED 000

Financial

assets

Contingent

liabilities and

commitments

At 31 December 2020

Industry sectors

Trading and manufacturing 646,005 279,577

Banks and financial institutions 4,102,920 4,897,709


Other 1,206,247 2,175,769

6,060,545 8,041,779

At 31 December 2019

Industry sectors

Trading and manufacturing 754,430 296,995

Banks and financial institutions 4,374,837 4,689,327


Other 1,225,563 2,498,378

6,458,860 8,425,598

The Branches have not availed the benefits of the Targeted Economic Support Scheme in the United Arab

Emirates.

b) Market risk

Market risk is the risk that the value of the financial instruments will fluctuate as a result of changes in

market prices whether those changes are caused by factors specific to the individual security or its issuer

or factors affecting all securities traded in the market. The Branches’ limits market risk through its Head

Office by maintaining a diversified portfolio, proactively monitoring the key factors that affect market

movements and periodically analysing the operating and financial performance of its customers.

Currency risk

Currency risk represents the risk of change in the value of financial instruments due to changes in foreign

exchange rates. The Branches’ has set limits on positions by currencies, which are monitored daily, and

hedging strategies are also used to ensure that positions are maintained within the limits.





b) Market risk (continued)

Currency risk (continued) The Branches’ assets are typically funded in the same currency as that of the business transacted in order to eliminate foreign exchange exposure. However, the Branches’ maintains a position in United States Dollar (“USD”) within limits approved by the management of the Branches’.

The Branches’ takes positions on exposures to manage the effects of fluctuation in the prevailing foreign

currency exchange rates on its financial position and cash flows. The Head Office sets limits on the level of

exposures by currency and in total, which are monitored regularly. The following table summarises the Branches’ exposure to foreign currency exchange rate risk at 31 December 2020 and 2019. Included in the table are the Branches’ financial assets and liabilities and off-balance sheet items at carrying amounts, categorised by currency:

AED USD Others Total

AED’000 AED’000 AED’000 AED’000

31 December 2020

Assets

Cash and balances with the Central Bank of the UAE

842,924 - - 842,924

Due from other banks - 32,738 33,921 66,659 Due from Head Office and branches

8 795,935 2,030,169 2,826,112

Loans and advances 240,496 2,024,306 323 2,265,125 Other assets 41,344 222,546 227,487 491,377

Total assets 1,124,772 3,075,525 2,291,900 6,492,197

Liabilities Customers’ deposits 1,631,854 1,138,775 396,375 3,167,004 Due to the Central Bank of the UAE

1,692 - - 1,692

Due to other banks - - 2 2 Due to Head Office

and branches 106,285 910,413 115,160 1,131,858

Other liabilities 55,451 219,695 273,668 548,814

Total liabilities 1,795,282 2,268,883 785,205 4,849,370

Net balance sheet position (670,510) 806,642 1,506,695 1,642,827





b) Market risk (continued)

Currency risk (continued)

AED USD Others Total

AED’000 AED’000 AED’000 AED’000

31 December 2019

Assets

Cash and balances with the Central Bank of the UAE

1,269,634 140,354 - 1,409,988

Due from other banks 12,694 27,321 2,414 42,429 Due from Head Office and branches

- 1,426,110 1,058,297 2,484,407

Loans and advances 366,750 2,060,372 27,947 2,455,069 Other assets 55,412 259,979 231,269 546,660

Total assets 1,704,490 3,914,136 1,319,927 6,938,553

Liabilities Customers’ deposits 1,464,378 2,150,335 590,147 4,204,860 Due to other banks - 8 2 10 Due to Head Office

and branches 53,912 145,734 119,324 318,970

Other liabilities 63,277 266,518 284,818 614,613

Total liabilities 1,581,567 2,562,595 994,291 5,138,453

Net balance sheet position 122,923 1,351,541 325,636 1,800,100

Interest rate risk

Interest rate risk arises from the possibility that the changes in interest rates will affect either the fair values

or the future cash flows of the financial instruments. The branches have established interest rate gap limits

for stipulated periods. The branches monitor positions daily and use hedging strategies to ensure

maintenance of positions within the established gap limits.

The branches' exposure to interest rate mismatches arise from balances from Central Bank of UAE

AED 630 million (2019: AED 950 million) due from other banks of AED 33 million (2019: AED 28

million), due from Head Office and branches of AED 2,794 million (2019: AED 2,407 million), loans and

advances of AED 2,264 million (2019: AED 2,137 million), customers’ deposits of AED 788 million

(2019: AED 2,051 million) and due to Head Office and branches of AED 1,006 million (2019: AED 218

million), which is re-priced periodically. Management monitors interest rate risk through the use of a

detailed gap report and stress tests to analyse the impact of anticipated movements in interest rates.





b) Market risk (continued) Interest rate risk (continued)

The following table summarises the Branches’ financial assets and liabilities at carrying amounts, categorised by maturity dates.

Less than

3 months

From

3 months

to 1 year

From

1 year to

5 years

Non-interest

bearing Total

Effective

interest rate

AED’000 AED’000 AED’000 AED’000 AED’000 %

At 31 December 2020

Assets

Cash and balances with the Central Bank of the UAE 630,000 - - 212,924 842,924 0.10%

Due from other banks 32,738 - - 33,921 66,659 0.64%

Due from Head Office and branches 1,047,865 1,746,123 - 32,124 2,826,112 -0.41%

Loans and advances

Gross 883,391 1,430,026 370,621 - 2,684,038 1.03%

Provision - - - (418,913) (418,913) -

Other assets - - - 491,377 491,377 -

Total assets 2,593,994 3,176,149 370,621 351,433 6,492,197

Liabilities

Customers’ deposits 409,206 360,430 18,583 2,378,785 3,167,004 0.36%

Due to the Central Bank of the UAE - - - 1,692 1,692 -

Due to other banks - - - 2 2 -

Due to Head Office and branches 1,006,048 - - 125,810 1,131,858 0.16%

Other liabilities - - - 548,814 548,814 -

Total liabilities 1,415,254 360,430 18,583 3,055,103 4,849,370

Net position 1,178,740 2,815,719 352,038






Less than

3 months

From

3 months

to 1 year

From

1 year to

5 years

Non-interest

bearing Total

Effective

interest rate

AED’000 AED’000 AED’000 AED’000 AED’000 %

At 31 December 2019

Assets

Cash and balances with the Central Bank of the UAE 950,000 - - 459,988 1,409,988 1.51%

Due from other banks 27,777 12,265 - 2,387 42,429 2.40%

Due from Head Office and branches 2,016,726 390,501 - 77,180 2,484,407 0.85%

Loans and advances

Gross 1,160,330 969,175 560,770 - 2,690,275 3.02%

Provision - - - (235,206) (235,206) -

Other assets - - - 546,660 546,660 -

Total assets 4,154,833 1,371,941 560,770 851,009 6,938,553

Liabilities

Customers’ deposits 1,157,778 890,058 3,049 2,153,975 4,204,860 2.12%

Due to other banks - - - 10 10 -

Due to Head Office and branches 218,381 - - 100,589 318,970 0.97%

Other liabilities - - - 614,613 614,613 -

Total liabilities 1,376,159 890,058 3,049 2,869,187 5,138,453

Net position 2,778,674 481,883 557,721

BNP Paribas - Dubai Branch 49

Notes to the financial statements for the year ended 31 December 2020 (continued)



The following table depicts the sensitivity to a reasonable possible change in interest rates, with other

variables held constant, on the Branches’ statement of comprehensive income. The sensitivity of the

income is the effect of the assumed changes in interest rates on the net interest income for one year, as at

31 December. All banking book exposures are monitored and analysed in currency concentrations and

relevant sensitivities are disclosed:

2020 2019

AED’000 AED’000

Effect of a ± 25 bps change in EIBOR 9,816 8,163

The interest rate sensitivities set out above employ simplified scenarios. They are based on AED 5,721

million (2019: AED 5,535 million) interest bearing assets and AED 1,794 million (2019: AED 2,269

million) interest bearing liabilities. The sensitivity does not incorporate actions that could be taken by

management to mitigate the effect of interest rate movements.

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate

because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a

financial instrument will fluctuate because of changes in market interest rates. The Branches’ takes on

exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value

and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create

losses in the event that unexpected movements arise. The Head Office sets limits on the level of mismatch

of interest rate repricing that may be undertaken, which is monitored daily.

c) Liquidity risk

Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments

associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset at

a price that approximates its fair value. Liquidity risk is managed by regular monitoring of the availability

of sufficient funds to meet future commitments. Head Office funding is available for any liquidity need of

the Branches’.




c) Liquidity risk (continued)

Liquidity risk management process

The Branches’ liquidity management process, as carried out within the Branches’ and monitored by the

Treasury Department includes:

• As a starting point, the Branches’ analyses the contractual maturity of the financial liabilities and the

expected collection date of all the financial assets at each currency level. The assets without

contractual maturity are spread over a period based on BNP Paribas group methodology and statistical

behavior of the asset.

• Based on the net result and gap analysis, treasury decides to borrow the shortages / lend the excesses

in the interbank market. The Head Office offers liquidity to the Branches’ for their lending and

borrowing needs.

• Day to day funding, managed by monitoring future cash flows to ensure that requirements can be

met. This includes replenishment of funds as they mature.

The Branches’ manages its liquidity in accordance with the requirements of the Central Bank of the UAE

and the Branches’ internal guidelines. The Central Bank of the UAE has prescribed reserve requirements

on deposits ranging between 1% and 14% on demand and time deposits. The Central Bank of the UAE

also imposes mandatory 1:1 advances to deposit ratio whereby loans and advances (combined with inter-

bank placements having a remaining term of greater than three months) should not exceed stable funds as

defined by the Central Bank of the UAE. The management of the Branches’ monitors the liquidity ratios

on a regular basis.

Non-derivative cash flows

The table below presents the cash flows payable by the Branches’ under non-derivative financial liabilities

by remaining contractual maturities at the statement of financial position date. The amounts disclosed in

the table are the contractual undiscounted cash flows.

Up to 3

months

3 – 12

months

1 – 5

years

Over 5

years Total


31 December 2020


Due to the Central Bank of the

UAE 1,692 - - - 1,692

Due to other banks 2 - - - 2

Due to Head Office and branches 1,131,858 - - - 1,131,858


Total 4,751,429 86,764 11,177 - 4,849,370

31 December 2019


Due to other banks 10 - - - 10

Due to Head Office and branches 318,970 - - - 318,970


Total 4,975,379 159,972 3,102 - 5,138,453




c) Liquidity risk (continued)

Derivative cash flows

The Branches’ derivatives that will be settled on a gross basis include foreign exchange contracts.

The table below analyses Branches’ derivative financial instruments that will be settled on a gross basis

into the relevant maturity groupings based on the remaining period at the statement of financial position

date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted

cash flows.

Up to 1

month

1 – 3

months

3 -12

months

1– 5

years

Over 5

years Total


At 31 December 2020

Foreign exchange contracts

-Outflow 2,010,314 2,516,015 83,549 17,755 - 4,627,633

-Inflow 2,014,009 2,500,810 81,775 17,235 - 4,613,829

At 31 December 2019

Foreign exchange contracts

-Outflow 1,879,032 1,293,716 39,517 21,980 - 3,234,245

-Inflow 1,877,282 1,290,480 39,517 22,008 - 3,229,287

Off-balance sheet items

No later

than 1 year 1-5 years

Over 5

years Total

AED’000 AED’000 AED’000 AED’000

31 December 2020

Contingent liabilities and commitments 7,341,925 620,522 79,332 8,041,779

31 December 2019

Contingent liabilities and commitments 7,584,713 804,798 36,087 8,425,598

d) Fair values of financial assets and liabilities Fair value is the amount for which an asset could be exchanged or a liability settled between

knowledgeable, willing parties in an arm’s length transaction. The estimated fair value of the Branches’

financial assets and liabilities are not significantly different from their respective carrying values.





e) Capital management

Capital management is performed at Head Office level. The Bank maintains sufficient fund at the branches

level to support the development of their business.

BNP Paribas SA will continue to provide such financial support to meet the branches’ ongoing financial

commitments as may be required.

For assessment of current capital requirements, as specified below, by the Central Bank of the UAE, the

branches calculate their risk asset ratio in accordance with guidelines established by the Central Bank

prescribing the ratio of total capital to total risk-weighted assets.

Capital structure and capital adequacy as per Basel II requirement

Including capital conservation buffer requirement of 2.5% (2019: 2.50%).

2020 2020

Minimum

requirement Actual ratio

Common equity tier 1 ratio 9.50% 24.48%

Tier 1 capital ratio 11.00% 24.48%

Capital adequacy ratio 13.00% 26.00%

2019 2019

Minimum

requirement Actual ratio

Common equity tier 1 ratio 9.50% 25.52%

Tier 1 capital ratio 11.00% 25.52%

Capital adequacy ratio 13.00% 26.96%





e) Capital management (continued)

Capital structure and capital adequacy as per Basel II requirement (continued)

The consolidated ratio of the branches is in line with the assessment of capital adequacy ratio in accordance

with the Basel I and Basel II Accord as shown in the following table:

2020 2019

AED’000 AED’000

Tier 1 capital

Allocated capital 446,431 446,431

Legal reserves 162,720 162,720

Retained earnings 982,061 1,098,056

Actuarial loss (3,623) (1,947)

1,587,589 1,705,260

Regulatory deductions

Deferred tax (59,855) (27,513)

Total Tier 1 Capital 1,527,734 1,677,747

Tier 2 capital

General reserves 95,000 95,000

Total regulatory capital 1,622,734 1,772,747

Risk weighted assets

Credit risk 5,913,868 6,245,220

Market risk 24,829 3,955

Operational risk 301,973 325,979

Total risk weighted assets 6,240,670 6,575,154

Capital adequacy ratio on regulatory capital 26.00% 26.96%

Capital adequacy ratio on tier 1 capital 24.48% 25.52%






Analysis of Branches' exposure based on Basel II standardised approach

Credit risk

Credit Risk Mitigation (CRM)

On balance

sheet gross

outstanding

Off balance

sheet net

exposure

after credit

conversion

Exposure

before

CRM CRM After CRM

Risk

weighted

assets


31 December 2020

Claims on sovereigns 842,902 - 842,902 - 842,902 -

Claims on banks 2,892,769 99,487 2,992,256 (2,793,989) 198,267 117,036

Claims on corporates 1,532,482 3,995,769 5,528,251 -206,291 5,321,960 5,513,760

Past due loans 79,012 - 79,012 - 79,012 79,012

Other assets 136,062 - 136,062 - 136,062 204,060

Total claims 5,483,227 4,095,256 9,578,483 (3,000,280) 6,578,203 5,913,868

Credit Risk Mitigation (CRM)

On balance

sheet gross

outstanding

Off balance

sheet net

exposure

after credit

conversion

Exposure

before CRM CRM After CRM

Risk

weighted

assets


31 December 2019

Claims on sovereigns 1,409,327 - 1,409,327 - 1,409,327 -

Claims on banks 2,526,865 84,899 2,611,764 (2,407,227) 204,537 99,674

Claims on corporates 2,456,624 4,478,342 6,934,966 (214,948) 6,720,018 5,943,395

Past due loans 48,298 - 48,298 - 48,298 48,298

Other assets 113,727 - 113,727 - 113,727 153,853

Total claims 6,554,841 4,563,241 11,118,082 (2,622,175) 8,495,907 6,245,220






Analysis of Branches' exposure based on Basel II standardised approach (continued)


Risk weighted assets Capital charge

2020 2019 2020 2019

AED’000 AED’000 AED’000 AED’000

Foreign exchange risk 24,829 3,955 1,986 316

Capital charge for the year ended 31 December 2020 has been calculated at 8% (2019: 8%).

28. Leases

This note provides information for leases where the Branch is a lessee.

(i) Amounts recognised in the statement of financial position

The statement of financial position shows the following amounts relating to leases (net of depreciation):

2020

AED

2019

AED

Right of use assets

Leasehold properties 7,476 13,790

Lease liabilities 6,437 12,255

Additions to right of use assets during the year ended 2020 was Nil (2019 were AED 2,427 thousand).

(ii) Amounts recognised in the statement of profit or loss

The statement of comprehensive income shows the following amounts relating to leases:

2020 2019

AED AED

Depreciation charge of right of use assets 3,379 6,219

Interest expense 130 238

The total cash outflow for leases in 2020 was AED 3,012 thousand (2019 was AED 6,518 thousand).

29. Approval of the financial statements

The financial statements were approved by the Management and authorized for issue on 20 April 2021.

BNP Paribas UAE

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